Rating Rationale
February 26, 2021 | Mumbai
AIA Engineering Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities RatedRs.818 Crore (Enhanced from Rs.638 Crore)
Long Term RatingCRISIL AA+/Stable (Reaffirmed)
Short Term RatingCRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities
This Rating Rationale is published solely to update the bank-wise facility details as provided by the rated entity; other sections are same as the previous Rating Rationale dated February 19, 2021.

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA+/Stable/CRISIL A1+’ ratings on the bank facilities of AIA Engineering Limited (AIA; a part of the AIA group).

 

Business performance was largely muted in fiscal 2020, as the Covid-19 pandemic led to a nationwide lockdown between March and June 2020, and subsequent restrictions thereafter. However, with easing of restrictions, operations started picking up with large export orders, and revenue and operating margin of Rs 2021 crore and about 24% were reported for the nine months ended December 31, 2020. Exports contribute around 79% of AIA’s turnover and grew at a healthy 3% in fiscal 2020. Profitability should remain healthy at 22-23%, driven by the premium product offerings and the company’s ability to pass on the impact of raw material price fluctuations to customers. Besides, a healthy order book, continued strong demand from the mining sector and planned capital expenditure (capex) expansion will support revenue growth over the medium term.

 

AIA commissioned a 50,000 MT capacity in August 2019, and may add another 50,000 MT by June 2021; the latter has been delayed due to the pandemic. The company has further postponed the last phase of expansion in the grinding media by 50,000 MT to the second quarter of fiscal 2022. This entire capex is to be funded via existing cash surplus and internal accrual. Given the sizeable market potential of high-chrome grinding media for mining globally, increased capacities will enable AIA to scale-up further and strengthen its market presence.

 

The ratings continue to reflect the AIA group's healthy market position in the high-chrome mill parts and components market globally, its well-diversified revenue profile (both in terms of end-user segments and geographic coverage), and robust financial risk profile. These strengths are partially offset by the large working capital requirement and susceptibility to fluctuations in raw material prices and volatile foreign exchange (forex) rates.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of AIA and its subsidiaries, Welcast Steels Ltd (74.85% stake) and Vega Industries (Middle East) FZE (100%). This is because of the close operational and financial linkages between all these entities, collectively referred to herein as AIA.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths

  • Healthy market position in the high-chrome mill parts and components market

The AIA group has a strong market position in the in the high-chrome mill parts and components market globally, driven by superior technology, presence across key segments, efficient aftersales services, and longstanding client relationships in all end-user segments.

 

  • Diversified revenue profile

The revenue mix benefits from diversity across end-user segments and geographical reach. AIA sells mill parts and components to the cement, mining and power industries. Further, within the mining segment, the company services ores of different minerals such as iron, copper, gold, and platinum across various geographies.

 

  • Robust financial risk profile

Financial risk profile is robust, supported by steady cash accrual, low debt, comfortable debt protection metrics and strong liquidity. Gearing has been stable below 0.15 time over the past decade and will remain strong going forward. Besides strong liquidity at over Rs   14 billion in fiscal 2020, will comfortably fund the large capex of Rs 250 crore planned in fiscal 2021, for enhancing capacities to  440,000 tonne per annum (tpa).

 

Weaknesses

  • Large working capital requirement

Operations are working capital intensive, marked by large inventory and receivables of 124 days and 82 days, respectively, as on March 31, 2020. The company has to maintain large stock of inventory across geographies. Besides, receivables are moderately high due to long credit cycles extended to overseas clients. However incremental working capital requirement may be funded from the strong internal cash accrual, with negligible reliance on external debt.

 

  • Susceptibility to fluctuations in raw material prices and volatile forex movements

Operating margin remains susceptible to fluctuations in raw material prices (particularly, steel scrap and ferrochrome) and foreign exchange rates, with exporting account for 75% of sales. Operating margin for instance declined to 18-20% in fiscals 2012 and 2013, and subsequently improved to over 28% over fiscals 2015 to 2017. While the margin remains susceptible to the above-mentioned risks, CRISIL Ratings believes that profitability would sustain at 22-23% over the medium term, given the ability to pass on raw material price fluctuations to customers.

Liquidity: Strong

The AIA group has strong liquidity, with cash and marketable securities of about Rs 1800 crore as on December 31, 2020. The fund-based bank limits remain largely unutilised. Healthy cash accrual of over Rs 500 crore, expected in the medium term, should suffice to cover the capex requirement of Rs 100-150 crore, in the absence of long term debt.

Outlook Stable

CRISIL Ratings believes AIA’s business risk profile will continue to benefit from the group’s healthy market position and diversified revenue profile. Furthermore, the financial risk profile should remain healthy over this period, supported by steady cash accrual and large liquid surplus, notwithstanding the ongoing capex.

Rating Sensitivity Factors

Upward factors:

  • Sustained revenue growth of 15%, coupled with healthy operating profitability at over 25%
  • Efficient working capital management and sustenance of the robust financial risk profile

 

Downward factors:

  • Significantly weak operating performance due to a steep fall in revenue or profitability below 18%, or delay in scaling up of operations, following the large capacity addition
  • Large debt-funded capex or acquisition, weakening gearing to over 1 time or depleting liquid surplus below Rs 200 crore
  • Change in key management and the consequent impact on the business performance

About the Company

AIA was incorporated in 1978, as Ahmedabad Induction Alloys Pvt Ltd, by the promoter, Mr Bhadresh Shah. This company was reconstituted as a public-limited company with the current name in 2005. It manufactures high-chrome grinding media, liners, and diaphragms, collectively known as mill internals. These are used for crushing and grinding operations in grinding mills, in the cement, power utility, and mining industries. AIA has one manufacturing subsidiary in India and  eight marketing entities overseas. Capacity of  390,000 tpa, is being expanded to  440,000  tpa.

 

For the first nine months of fiscal 2021, consolidated net profit was Rs 433 crore on operating income of Rs 2021 crore, against Rs 448 crore and Rs 2124 crore, respectively, during the corresponding period of fiscal 2020.

Key Financial Indicators

Particulars

Unit

2020

2019

Revenue

Rs.Crore

2,970

3,069

Profit After Tax (PAT)

Rs.Crore

590

511

PAT Margin

%

19.9

16.7

Adjusted debt/adjusted networth

Times

0.03

0.04

Interest coverage

Times

78

70.5

 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Name of instrument

Date of allotment

Coupon rate (%)

Maturity date

Issue size (Rs.Crore)

Complexity Levels

Rating assigned with outlook

NA

Cash credit^

NA

NA

NA

150

NA

CRISIL AA+/Stable

NA

Cash credit^^

NA

NA

NA

200

NA

CRISIL AA+/Stable

NA

Letter of credit & bank guarantee

NA

NA

NA

35

NA

CRISIL A1+

NA

Overdraft$

NA

NA

NA

30

NA

CRISIL AA+/Stable

NA

Bank Guarantee$$

NA

NA

NA

50

NA

CRISIL A1+

NA

Export Packing Credit**

NA

NA

NA

228

NA

CRISIL AA+/Stable

NA

Export Packing Credit*

NA

NA

NA

25

NA

CRISIL AA+/Stable

NA

Working Capital

Demand Loan#

NA

NA

NA

100

NA

CRISIL AA+/Stable

^Interchangable with Working Capital Demand Loan. LC/BG is sub-limit of Fund based limit of Rs. 150 Crore.

^^Interchangable with EPC/FBD

$Interchangable with Working capital/Pre-Shipment/Post Shipment. LC/BG is sub-limit of Fund based limit of Rs.30 Crore.

$$Letter of credit is sub limit of BG Limit of Rs.50 Crore.

**Interchangable with BC/BD/WCDL/LC/SBLC. BG upto 110 crores is sub-limit of Fund based limit of Rs.228 Crore.

*EPC/PCFC/FBP/FBD/WCDL is sub limit of CC of Rs.25 Crore.

#EPC/PCFC/FBP/FBD is sub limit of WCDL/FCDL of Rs.100 Crore

Annexure – List of entities consolidated

Name of Entity

Extent of Consolidation

Rationale for Consolidation

Welcast Steels Limited

Full

Subsidiary, business synergies

Vega Industries (Middle East) FZE

Full

Subsidiary, business synergies

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 733.0 CRISIL AA+/Stable 19-02-21 CRISIL AA+/Stable   -- 14-11-19 CRISIL AA+/Stable 02-05-18 CRISIL AA+/Stable CRISIL AA+/Stable
      --   --   -- 06-11-19 CRISIL AA+/Stable   -- --
      --   --   -- 30-08-19 CRISIL AA+/Stable   -- --
Non-Fund Based Facilities ST 85.0 CRISIL A1+ 19-02-21 CRISIL AA+/Stable / CRISIL A1+   -- 14-11-19 CRISIL AA+/Stable / CRISIL A1+ 02-05-18 CRISIL A1+ CRISIL A1+
      --   --   -- 06-11-19 CRISIL A1+   -- --
      --   --   -- 30-08-19 CRISIL A1+   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Name of Lender Amount (Rs.Crore) Rating
Bank Guarantee$$ State Bank of India 50 CRISIL A1+
Cash Credit^ HDFC Bank Limited 150 CRISIL AA+/Stable
Cash Credit^^ JP Morgan Chase Bank N.A. 180 CRISIL AA+/Stable
Cash Credit^^ JP Morgan Chase Bank N.A. 20 CRISIL AA+/Stable
Export Packing Credit** Citibank N. A. 228 CRISIL AA+/Stable
Export Packing Credit* IDBI Bank Limited 25 CRISIL AA+/Stable
Letter of credit & Bank Guarantee IDBI Bank Limited 35 CRISIL A1+
Overdraft Facility$ The Hongkong and Shanghai Banking Corporation Limited 30 CRISIL AA+/Stable
Working Capital Demand Loan# Axis Bank Limited 100 CRISIL AA+/Stable
       

This Annexure has been updated on 7-Sep-2021 in line with the lender-wise facility details as on 18-Aug-2021 received from the rated entity.

^Interchangable with Working Capital Demand Loan. LC/BG is sub-limit of Fund based limit of Rs.150 Crore.

^^Interchangable with EPC/FBD

$Interchangable with Working capital/Pre-Shipment/Post Shipment LC/BG is sub-limit of Fund based limit of Rs.30 Crore.

$$Letter of credit is sub limit of BG Limit of Rs.50 Crore.

** Interchangable with BC/BD/WCDL/LC/SBLC. BG upto 110 crores is sub-limit of Fund based limit of Rs.228 Crore

*EPC/PCFC/FBP/FBD/WCDL is sub limit of CC of Rs.25 Crore.

#EPC/PCFC/FBP/FBD is sub limit of WCDL/FCDL of Rs.100 Crore.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Criteria for Consolidation
Understanding CRISILs Ratings and Rating Scales
CRISILs Bank Loan Ratings

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